Jeff Judy

Jeff's Thoughts - April 5, 2017

Owning the Credit Decision

A long time ago, in a galaxy far far away, granting credit was largely a decision made by an individual banker. "Character lending" was big, and good analytical tools were few.

Well, we certainly live and work in a very different world nowadays! Software has a powerful influence on credit decisions. When I started in banking some decades ago, none of us could have ennvisioned the small business credit scoring approach that is so ubiquitous today.

Meanwhile, you would be hard pressed to find relationship managers who handle the entire information gathering, borrower analysis, and credit decision on their own. The modern credit decision process is much more a team effort, requiring several steps, and several players, to arrive at a result.

Typically, a relationship manager (who may have any of various official titles) gathers information from the borrower, but also communicates information back to the borrower. That could be a request for more detailed information or it could be the final decision. In between those bouts of information sharing, the data gets a going over by a credit analyst, who uses sophisticated software in the process. And the final decision may go to one or more approvers.

So, perhaps back in the day, the relationship manager would sit down with the (potential) borrower and start the meeting with, "I have decided ...". Today, that conversation should probably start with, "We have decided ...".

And I am sure it does ... when the relationship manager can say, "We have decided to approve your request." But what about bad news? That's when we hear things like:

In other words, someone else or something else (a computer) decided to decline the credit request. And when customers hear these kinds of excuses, they find it incredibly frustrating. When they don't feel they are talking to the decision maker, they don't have confidence that they have any way to strengthen their request and win approval.

Why do we hear these weak statements around declines? Well, it is human nature not to want to be responsible for bad news. That's why the institution has to take measures to ensure that the relationship manager steps up and takes ownership of the decision.

First, from a management perspective, it must be made clear to credit staff that shifting responsibility for the decision, when talking to a customer, is not acceptable.

More fundamentally, your staff have to be clear on how the credit decision is made. In my consulting work, I've encountered credit policies that are not clear about whether the analyst delivers a decision or a recommendation. In some institutions I have worked with, the analyst and the relationship manager were supposed to come to a joint decision to present to approvers, but the policy didn't spell out what happens if they disagree.

If your staff are not confident about how the credit decision is made internally, they will not be comfortable with how they present the decision externally. The interaction between the customer and the relationship manager will go poorly. And when those potential borrowers have fixed their deficiencies, they will look for credit elsewhere.

Good credit decisions are important to your profitability. But so is good delivery of those credit decisions. Make sure your institution creates an environment where your relationship managers can confidently take ownership of every credit decision they present to your customers.